Belgium country note: OECD Economic Outlook, May 2021

12 

Belgium After the severe contraction in 2020, GDP is projected to expand by 4.7% in 2021 and 3.5% in 2022. As the vaccination campaign accelerates, uncertainties about the epidemic situation are expected to recede. Along with improved global economic prospects, business investment is set to be unleashed and pent-up demand is expected to boost household consumption. The recovery should gather pace, with GDP surpassing the pre-crisis level towards mid-2022.

Fiscal policy is expected to remain supportive over the projection period. While temporary measures can be phased out once the recovery is on a solid path, the remaining supportive policies should strictly target viable businesses and jobs until they are finally wound down. The authorities should facilitate the reallocation of resources to those sectors where growth prospects are higher, while fully deploying the recovery plan with its focus on the green and digital transition of the economy.

The epidemic has surged sporadically Between the peak in autumn 2020 and mid-May 2021, the number of COVID-19 cases declined by more than 80%. Nonetheless, the healthcare system remains under pressure, with a high number of patients in intensive care units. The vaccination campaign is progressing. More than 90% of people over 65 and above had received a first vaccination by mid-May and almost all elderly people are expected to be vaccinated fully by June. Over the past 6 months, temporary and limited containment measures were introduced.

While most restrictive measures have already been removed, some restrictions remain, for example those on restaurants and bars as well as mass events, which were relaxed only partially in May.

Belgium Pent-up demand will boost private consumption Index 2019Q1 = 100 110

Improved business sentiment will support investment Index 1.0

Index 2019Q1 = 100 115

← Private consumption

0.0

95

-0.5

90

-1.0

85

1.0

Business sentiment¹ →

0.5

100

80

← Business investment

110

Consumer confidence¹ →

105

Index 1.5

105

0.5

100

0.0

95

-0.5

90

-1.0

85

-1.5

80

-2.0

75

-2.5

-1.5

2019

2020

2021

2022

-2.0

70

2019

2020

2021

2022

-3.0

1. The series is normalised using its long-term average and standard deviation. Quarterly average.

Source: OECD Economic Outlook 109 database; and National Bank of Belgium.

StatLink 2 https://stat.link/dgck54

OECD ECONOMIC OUTLOOK, VOLUME 2021 ISSUE 1: PRELIMINARY VERSION © OECD 2021

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Belgium: Demand, output and prices 2017

Belgium GDP at market prices Private consumption Government consumption Gross fixed capital formation Final domestic demand Stockbuilding1,2 Total domestic demand Exports of goods and services Imports of goods and services Net exports1 Memorandum items GDP deflator Harmonised index of consumer prices Harmonised index of core inflation3 Unemployment rate (% of labour force) Household saving ratio, net (% of disposable income) General government financial balance (% of GDP) General government gross debt (% of GDP) General government debt, Maastricht definition (% of GDP) Current account balance (% of GDP)

2018

Current prices EUR billion

445.1 229.1 102.5 103.6 435.2 5.2 440.4 370.2 365.6 4.6 _ _ _ _ _ _ _ _ _

2019

2020

2021

2022

Percentage changes, volume (2015 prices)

1.8 1.9 1.3 3.4 2.1 0.3 2.4 0.6 1.3 -0.5

1.8 1.5 1.6 3.5 2.0 -0.4 1.6 1.0 0.8 0.2

-6.3 -8.7 0.6 -6.9 -6.1 0.0 -6.0 -4.6 -4.3 -0.3

4.7 4.3 5.0 7.5 5.2 0.1 5.3 7.0 7.7 -0.5

3.5 5.7 0.6 4.4 4.1 0.0 4.0 4.8 5.4 -0.6

1.6 1.7 1.1 1.1 0.9 2.3 1.2 0.4 1.5 1.2 1.3 1.5 1.4 0.5 0.9 6.0 5.4 5.6 6.4 6.3 4.7 6.1 15.5 12.1 8.4 -0.8 -1.9 -9.4 -7.2 -4.0 118.3 121.0 143.4 144.6 144.2 99.8 98.1 114.1 115.3 115.0 -0.8 0.3 -0.2 -0.9 -1.4

1. Contributions to changes in real GDP, actual amount in the first column.

2. Including statistical discrepancy. Statistical discrepancy contributes to 5.3% in 2019 percentage changes.

3. Harmonised index of consumer prices excluding food, energy, alcohol and tobacco.

Source: OECD Economic Outlook 109 database.

StatLink 2 https://stat.link/5bwfzy

Uncertainty continues to hamper private spending While growth has picked up over the past 6 months, with the economy expanding by ½ per cent in the first quarter of 2021, the recovery has been uneven across sectors. Production in the manufacturing sector has already surpassed its pre-crisis level, but remains 6% below in the services sector. Business sentiment has improved, mainly driven by a rise in demand expectations, but uncertainty is still holding back a proportionate increase in business investment. Some services sectors remain particularly hard hit because of mandatory closures, such as the accommodation and food, and the arts and entertainment sectors, with reported turnover 67% and 80% below normal, respectively in mid-April. Employment losses have been limited thanks to the temporary layoff scheme, utilised essentially by those in the most affected sectors.

Policy remains supportive The main direct fiscal support introduced in 2020, such as the temporary layoff scheme (1% of GDP) and the replacement income for the self-employed (0.7% of GDP), will remain in place until the end of June 2021. The deferral of tax and social contribution payments, the public guarantee scheme for new loans, and the moratorium on loan payments have also been extended, helping to overcome temporary liquidity shortages in some firms. The number of insolvencies has been limited so far, most likely thanks to policy support and the moratorium on filings for insolvency that was in place until early 2021. The government plans to reform the judicial reorganisation procedure, which aims at streamlining judicial proceedings and promoting out-of-court settlements and should help in case of a spike in insolvency procedures.

OECD ECONOMIC OUTLOOK, VOLUME 2021 ISSUE 1: PRELIMINARY VERSION © OECD 2021

14 

The recovery will be buoyant The economy is projected to rebound strongly, as the remaining restrictive measures are removed and the population is increasingly vaccinated. Private consumption will gain momentum, boosted by the removal of restrictions and pent-up demand. However, accumulated savings will remain in excess of pre-pandemic levels, while turnover in the labour market is expected to rise due to the winding down of most policy measures. With improved global economic prospects, business investment will gain ground once uncertainties about the epidemic are reduced, which can be stronger than projected. In contrast, the number of bankruptcies might increase by more than assumed, as a high number of firms, in particular those in the hardest hit sectors, anticipate the possibility of filing for insolvency in the near term, which could weigh on activity and employment.

Policies should support resource reallocation Policy support should be removed carefully, in line with the evolution of the pandemic and the recovery.

While some reallocation of activities and jobs may be inevitable, due to changes in people’s preferences and behaviour, policy support should be strictly targeted to viable jobs and firms. In addition, the planned insolvency reform should be implemented as scheduled to reduce the obstacles hampering the successful restructuring of viable firms and the smooth exit of non-viable ones. While significant job losses are expected in certain sectors, other sectors, including the information and communications sector, are creating new jobs. These can be facilitated, for instance, by making up-skilling and re-skilling programmes mandatory for those on temporary layoff schemes. Finally, the authorities should use the Next Generation EU funds swiftly and effectively to address potential growth, which is otherwise projected to slow markedly.

OECD ECONOMIC OUTLOOK, VOLUME 2021 ISSUE 1: PRELIMINARY VERSION © OECD 2021